THE EUROPEAN Central Bank's (BCE's) decision to postpone interest rate increases across the board means mortgages and credit in general in Spain and other common currency countries are likely to remain stable for some time.
According to the BCE's board of governors during a recent meeting in the Lithuanian capital of Vilnius, interest charged to high-street banks across the Eurozone for excess of reserves would remain at its current 0.4% until at least the middle of 2020.
This is the second time since 2011 that the BCE has postponed an interest rate rise, having previously said that they would start to climb by summer 2019 or, at the latest, the end of this year.
Although the interest charge on excess of reserves is different from the Euribor, or consumer interest across the Eurozone charged on mortgages, credit cards, for late payment, and other general finance, the decision announced by the BCE is part of a general policy of keeping rates down in order to encourage the flow of funding throughout bloc of countries which use the euro.
The BCE wants to aim for a rate of inflation of about or just below 2%, but no higher, and despite rock-bottom interest, it was still only at 1.2% in May and 1.7% in April.
Inflation in the Eurozone calculated without taking into account the rising prices of fuel, alcohol, cigarettes and food came in at 0.8% for May, well below the 1.3% for April.
Containing inflation and encouraging investment is the BCE's main aim, which it reaffirmed during the meeting in Lithuania – so it does not appear that the Euribor will be on the rise until at least the middle of next year either, although this was not explicitly stated.
Having sat at around the 2.5% mark from 2002 to 2006, the Euribor reached an historic high of 5.45% in September 2008, coinciding with the financial crisis, the collapse of Spain's housing market and recession and unemployment across the entire European Union, which meant mortgage payments spiralled out of control and led to countless repossessions.
But it dropped sharply in 2011, fell below 1% in 2013 and has been in negative figures since February 2016 – in fact, May closed with a Euribor interest rate of -0.175%.
This is in spite of fears in early 2017 that it could rise, forcing homeowners to tighten their belts.
The evolution of the Euribor before and after the financial crisis shows that variation tends not to be sharp – and, in Spain, variable-rate mortgages are updated annually, giving owners plenty of time to plan and contract a fixed rate instead if interest looks set to creep up.
According to the BCE's board of governors: “Our aim is to continue reinvesting the main payments of the debt expiring under the programme of bond purchasing, in their entirety, for a prolonged period of time, after which interest rates will begin to rise.
“The reinvesting of debt repayments will continue for as long as necessary in order to maintain liquidity conditions and a large degree of financial comfort and stability.”
Unemployment in the Eurozone and EU
Also at the meeting, the governors revealed that unemployment as at the end of April – the last full month for which figures are available – had fallen to 7.6% in the Eurozone, its lowest since 2008, and to 6.4% in the European Union, its lowest since the year 2000 when Eurostat started compiling figures for the bloc as a whole.
Unemployment in Spain, based upon figures at the end of the first quarter – the most recent available – was 14.7%, or 3.35 million registered as jobseekers.
This is a vast improvement on figures during the financial crisis – in autumn 2012, it peaked at 27.2%, rising above 25% for the first time in history, with 6.2 million registered as unemployed.
The lowest unemployment was seen right at the start of post-dictatorship Spain, at 3.7%, or just 600,000, and since 1980, has only briefly been below 10% between the years 2004 and 2008, its lowest figure being in 2007 when 7.9%, or 1.8 million, were unemployed.
Within two-and-a-half years, it had risen by nearly 11 percentage points, to 18.8% and 4.3 million, continuing to climb until 2013.
Unemployment in Spain currently sits at around the same level as in 1981, which was the lowest it would be for the rest of the 20th century, and about the same as in the year 2000.
